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Ask SolicitorRM Your Own Question
SolicitorRM, Solicitor
Category: Law
Satisfied Customers: 5959
Experience:  Director and Principal Solicitor. UK
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I'm trying to work out (at very high level at this stage)

Customer Question

JA: Hi. How can I help?
Customer: I'm trying to work out (at very high level at this stage) what a reasonable liability limitation cap is for a Supplier of SaaS software, where the total annual fee (paid to the Supplier) is c £25K per annun. Is the liability cap deemed to be reasonable by reference to the annual fee paid to the Supplier, or is the size of the annual fee irrelevant? If so, what are the broad factors that determine the size of the cap. Thank you!
JA: Where are you? It matters because laws vary by location.
Customer: London, UK
JA: What steps have you taken so far?
Customer: I am asking as the Supplier. We are mid contract drafting with our Customer. They have proposed a Supplier liability cap of c£10m for cyber related matters, and £3.5m for all else. Our sense is that for a payment to us of just £25K per year, these caps are way too high.
JA: Is there anything else the Lawyer should know before I connect you? Rest assured that they'll be able to help you.
Customer: i think that's it, thakns
Submitted: 5 days ago.
Category: Law
Expert:  SolicitorRM replied 5 days ago.

Good day Welcome to Just answer.

Expert:  SolicitorRM replied 5 days ago.

I am a solicitor and It is my pleasure to be assisting you today. I may ask for further information in order to determine a legal position.

Customer: replied 5 days ago.
Sure. Hi.
Expert:  SolicitorRM replied 5 days ago.

Please note that I can guide you, justanswer does not provide legal representation and as such no legal lawyer/client relationship is formed.

Customer: replied 5 days ago.
What would you like to know?
Customer: replied 5 days ago.
Expert:  SolicitorRM replied 5 days ago.

I may not respond immediately as i will be concluding another case, please bear with me. I will respond once done rest assured today.

Expert:  SolicitorRM replied 5 days ago.

Thank you for your patience. There is no cap in liability provided by statute . If you have suffered loss as a business then your damages would be equivalent to your loss of profit, damages are not calculated on the basis of the fee that you pay for the provision of the service. . However most service provision agreements will stipulated in the agreement the limit of liability and if you agreed to this that would be the cap.

Expert:  SolicitorRM replied 5 days ago.

Any follow up please do not hesitate to send your message. I am glad to clarify anything. Thank you for contacting just answer. All the best.

Customer: replied 5 days ago.
Thanks. I', not asking if there's a limit by statute. I am asking if when drafting a contract and adding in a limitation to the supplier's liability, how one comes to a reasonable level for that limitation. Should it be £1m, for example, or £100m, or £5m? How does one know? And is a useful starting point for establishing the limit level to look at the annual fee that is being paid to the Supplier. So, for example, if the Supplier is being paid £1000 per year, it would be UNREASONABLE to ask them to accept (in the contract) a cap to their liability of, say, £10m. Because why would a company being paid only £1000 per year enter a contract in which they have a potential liability of £10m. So, in this example, we an see how the reasonableness of the liability cap has a relationship to the annual fee being paid to the Supplier. My question is whether this is correct - that when drafting a contract we look to the annual fee being paid to the Supplier to determine the liability cap. And if this is incorrect, can you tell me a little more about the relationship between annual fee and cap. I.e. if the annual fee was £25K what woudl a reasonable cap be? And if my assumption is not the whole story, and there are OTHER variables to consider when determining the cap, what are they?
Expert:  SolicitorRM replied 4 days ago.

Morning, thank you for clarifying, calculating liquidated daages is not easy however it is not plucking a figure from thin air. Accountants assist with this and the figure relates to estimated loss of profit if the service provider was to  breach their contract. Taking a very simple example if you were running a quarry site and you rely on company A to transport it to your end supplier and per week you make £10,000 then if they were to fail to turn up for at least a week you would lose that much and you account for time you need to get cover so in that case you would estimate at say £15,000 damages